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Want lower health insurance rates?

Frequently going to bid for lower group health insurance rates can end up hurting you in the long run

How should you react when your group health insurance rates go up? Some might think it’s fairly simple: it’s time to shop around! In other words, you show your current carrier you mean business by going out to bid. And since they don’t want to lose you, they’ll lower your rates. Sounds like a classic example of using marketplace competition to your advantage, right?

Unfortunately, it’s not that simple. Once upon a time, employers may have been able to get away with that strategy. But those days are largely gone, thanks to unprecedented industry consolidation and a host of other reasons. And that has huge implications for employers.

In fact, when you go out to bid frequently, you are likely hurting your chances for the very thing you’re trying to achieve—maintaining lower rates.

So, why is that the case and what’s an employer to do? How can you sensibly navigate the market to obtain the most favorable rates?

The risks in shopping frequently

Let’s say you deem a 5 percent rate increase unacceptable (which, by the way, is relatively low). You go out to bid and secure three competitive rates from other carriers that you leverage to get your current carrier to drop the increase down to zero. Success? Not necessarily.

Now imagine that in the following year your rate jumps 20% and you really need to secure lower rates. So once again you go out to bid, only this time the carriers that gave you a competitive bid last year now give you a much higher quote—or even pass on giving you one. Why? Because they now assume you’re only using them to get your current insurance carrier to lower the cost of your plan. They view you as a habitual bidder who lacks integrity and has no interest in developing a long-term partnership. And that’s really what carriers value today—a reliable client to partner with for the long haul.

Understand the likely reason for rate hikes
(hint: it’s your loss ratio)

Let’s continue with our hypothetical scenario, this time focusing on that 20 percent increase. Why would it have gone up so much? Probably because your claims activity was exceptionally high. If you were paying, say, $1 million a year for your plan but your carrier paid out $1.2 million, that’s a high loss ratio for them. Insurance carriers charge premium rates based largely on loss ratios, and they adjust those rates to improve the likelihood for lower loss ratios for the future.

Think positioning, not shopping

If you want to better your chances for optimal pricing, you need to shift from a shopping mindset to one that’s much more helpful: positioning.

Positioning yourself for the lowest unit cost over time essentially means making yourself an attractive client to insurance companies. You want to find ways to lower your loss ratio – in other words, to reduce your claims activity. That will empower you to negotiate the best possible renewal without having to explore the market every year. It’s an investment guaranteed to pay dividends over time.

Make bid requests part of a strategy—not the strategy

Consider the following to maintain lower rates:

  • Focus on wellness. Implementing wellness initiatives can identify employee health risks earlier, encourage healthier lifestyle choices and reduce medical costs—and claims activity—over the long-term.
  • Form partnerships. Partnering with a local doctor, clinic, or hospital can help secure better pricing.
  • Evaluate your plan. Making well-though-out, incremental changes to your overall health insurance plan can make it more cost-effective for you.
  • Give it time. Using a three-year cycle for going out to bid can give your initiatives a chance to get off the ground, increase the odds for competitive proposals and reduce the disruption of carrier changes.

You have so much flexibility for your insurance plan—embrace that fact. Your insurance advisor should be able to help you develop a sensible strategy that reduces the impulse to seek bids every year, reflects your overall employee compensation philosophy and improves your ability to maintain lower rates over time.

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John Preuss is a Senior Account Executive and Director of Employee Benefits, Wausau and Eau Claire Markets at M3 Insurance. John advises clients about the design, implementation and management of their benefit programs. Additionally, he partners with others at M3 to identify and acquire new business, implement go-to-market strategies, and build strong partnerships with key business leaders, insurance companies and community organizations.

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